FINDINGS OF FACT, CONCLUSIONS OF LAW AND
Eddy, District Judge.
March 10, 2015, the Montana Supreme Court issued its opinion
in Abbey/Land, LLC v. Interstate Mechanical, Inc., et
al., 2015 MT 77, 378 Mont. 372, 345 P.3d 1032, wherein
James River challenged the district court's entry of a
$12 million confessed judgment entered into between
Abbey/Land, LLC (A/L) and Glacier Construction Partners, LLC
(GCP), and for which those parties would seek to hold James
River Insurance Company (JRI) liable. After finding the
district court should have allowed JRI to intervene to
challenge the reasonableness of the confessed judgment, the
Montana Supreme Court remanded the case as follows:
We reverse the District Court's judgment dated March 17,
2014, in favor of Abbey/Land LLC and against Glacier
Construction Partners, LLC, in the amount of $12 million. We
remand and direct the District Court to enter an order
allowing James River Insurance Company to intervene in order
to raise the issue of the reasonableness of the confessed
judgment and whether it was the product of collusion.
The District Court may set the reasonable parameters of the
proceeding to determine these issues, and may determine
whether there should be discovery and to what extent.
Abbey/Land, ¶17 (emphasis added).
this matter came before the Court on July 17, 2017, for a
one-day contested hearing to consider the issue of the
reasonableness of the confessed judgment between A/L and GCP,
and whether it was the product of collusion. Prior to the
hearing the Court permitted the parties the additional
discovery to allow JR1 the opportunity to "meaningfully
contest" the confessed judgment, and allow the Court to
"objectively consider both the merits of the underlying
case and the value to a prudent uninsured defendant of
confessing judgment in exchange for a covenant not to
execute." J&C Moodie Properties, LLC v. Deck, et
al, 2016 MT 301, ¶38, 385 Mont. 382, 384 P.3d 466
(quoting Tidyman's Management Services, Inc. v.
National Union Fire Insurance Company of Pittsburgh, PA
(Tidyman's II), 2016 MT 201, ¶38, 384 Mont.
335, 378 P.3d 1182). The Court considered all material and
relevant evidence as to whether the confessed judgment was
unreasonable, or the product of fraud or collusion. The
parameters of the additional discovery for purposes of the
reasonableness hearing were as follows:
(1) The parties were each permitted to serve one set of
written discovery limited to 30 requests for production.
Interrogatories and requests for admission were not
permitted. Discovery was limited to documents and materials
that existed at the time or prior to the date the confessed
judgment was filed with the Court.
(2) Each party (A/L, GCP and JR1) was permitted to designate
one Rule 30(b)(6) corporate representative, and two expert
witnesses, who were to be fully disclosed pursuant
to Rule 26, Mont.R.Civ.P.
(3) Each party was allowed to depose the Rule 30(b)(6) and
expert witnesses of the other parties. Each such deposition
was not to exceed 3 hours, total, and the time was equally
split among all parties, 1.5 hours each. In addition, the
party who offered the witness was permitted to perpetuate any
additional testimony of the witness, not to exceed 30
(4) Original depositions transcripts were filed with the
Court and reviewed by the Court in their entirety, as well as
deposition exhibits, prior to the hearing.
(5) Each party was able to offer no more than 30 exhibits in
support of their respective position at the hearing.
(6) At the hearing the parties were afforded the opportunity
to present rebuttal testimony from any of the previously
disclosed Rule 30(b)(6) or expert witnesses, as well as
to the hearing, and in an effort to guide discovery, the
Court issued an additional order outlining the legal analysis
and factors it would consider in determining whether the
confessed judgment was unreasonable in amount, or the product
to the hearing the Court reviewed the sworn deposition
testimony of (1) Linda Finstad, JRFs Rule 30(b)(6) Designee;
(2) John Crist, JRI's Expert Witness; (3) John Guin,
JRI's Expert Witness; (4) Greg Murphy, GCP's Expert
Witness; (5) William Matteson, A/L's Rule 30(b)(6)
Designee and Expert Witness; (6) Ken Lind, GCP's Expert
Witness; (7) Paul Pederson, A/L's Expert Witness; and (8)
Jeff DuChateau, GCP's Rule 30(b)(6) Designee. While
testimony was elicited from witnesses regarding incidences
which occurred after the confessed judgment was entered, the
Court has disregarded this testimony consistent with its
earlier orders. The Court also reviewed over 100 depositions
referenced in the various depositions.
hearing JRI called (1) John Guin, and (2) John Crist to offer
additional testimony, and the Court requested further
testimony from Paul Pederson. The Court also admitted into
evidence Hearing Exhibits 1-76. The Court rejected all
objections on the part of A/L and GCP on the grounds that the
attorney-client privilege had been waived; any hearsay
objection was unfounded under Rule 801(d)(2), Mont.R.Evid.;
the exhibits, having been produced by the parties in
discovery, had sufficient indicia of reliability; and were
permitted to be considered under Rule 703, Mont.R.Evid. The
Court also rejected any argument the expert witnesses were
not competent to testify regarding their respective opinions,
although each witnesses' testimony had different weight
depending on their expertise. Having considered the
deposition and hearing testimony, as well as the exhibits
admitted at the hearing, the Court makes the following:
Donald G. Abbey (Abbey) is a wealthy real-estate developer
from Southern California. His primary residence is in
California. He owns, manages, and controls both A/L and GCP.
A/L and GCP are among twenty-two limited liability companies
owned by Mr. Abbey, fifteen of which were registered to
transact business in Montana.
was formed in 2000, to purchase Shelter Island, a small
island in Flathead Lake, and related shoreline properties.
Shelter Island itself was purchased for $2 million. Another $
15 million in development costs, but excluding construction
costs of the residence, was invested into Shelter Island and
the shoreline properties necessary to support it. Abbey is
the sole owner, manager, and member of A/L. He is the
ultimate decision maker for A/L, which does not have any
2001, A/L began to build a large residence on Shelter Island,
but fell into dispute with the original general contractor.
Accordingly, Abbey formed GCP to act as a new general
contractor for the project. Abbey was also the sole owner,
manager, and member of GCP. GCP's only construction
project was the residence on Shelter Island.
Matteson, A/L's Rule 30(b)(6) designee testified the
property and residence was held by Abbey for investment
purposes, and he didn't know if he ever intended to live
there. This testimony binds A/L-in contrast to Pederson's
testimony that Abbey intended to live at the property 50% of
the time and have it be his primary residence.
same individuals performed work on behalf of both A/L and
GCP. For example, William Matteson was both the
Vice-President of GCP, and also responsible for the financial
transactions of A/L. The Abbey Company, a separate entity
owned by Abbey, paid Matteson for the work he performed on
behalf of A/L and GCP.
acknowledged by Linda Finstad, JRI's Rule 30(b)(6)
designee, Abbey's various corporate structures, designed
to create multiple layers of insurance and pass through
liability to subcontractors, are not uncommon in the
May 1, 2006, Abbey entered into a General Contract
on behalf of both A/L and GCP for the construction of his
residence on Shelter Island. Ex. 1-7. The contract included
an arbitration provision which limited the prevailing
party's damages to actual damages. Consequential damages
were specifically excluded from recovery, as well as punitive
or other damages not measured by the prevailing party's
actual damages. Ex. 1-10.
Under the General Contract, GCP was reimbursed for
the cost of all the work it performed, but did not earn any
profit. Typically, a general contractor receives a fee in the
form of a percentage mark-up on the costs of the work, or a
pre-established lump sum fee, in order to compensate the
contractor for its general overhead and for its profit. The
General Contract also provided A/L would reimburse
GCP for the cost of correcting defective work. Thus, under
the General Contract, GCP served more as a
construction agent for A/L, instead of an independent,
at-risk general contractor. GCP was not designed to generate
a profit off of subcontractors, or anyone else, and relied
solely on Abbey as a source of funds.
Abbey had previously hired Interstate Mechanical, Inc.
("IMI") to provide analysis and recommendations
regarding the mechanical, electrical, and plumbing systems in
Abbey's litigation against the former architect and
former general contractor on the Shelter Island project.
After GCP took over general contractor responsibilities in
2006, IMI was hired as a subcontractor to provide HVAC and
plumbing work on the project. GCP entered into a $1.4 million
contract with IMI, Inc. for the design and installation of
the plumbing and heating-cooling system for the house.
Subsequent change orders increased the value of that contract
by approximately $ 1 million.
When a dispute arose between A/L and IMI in 2009, IMI invoked
the arbitration provision of their agreement. IMI claimed
$806, 917.95 in damages arising from its termination from the
project. GCP counterclaimed against IMI for $1, 608, 644.26
in damages arising from its faulty work. Ex. 2-11.
preliminary arbitration hearing was scheduled for September
A/L and GCP filed this action on September 23, 2009, the day
before that scheduled arbitration hearing. Initially, A/L and
GCP were both plaintiffs and asserted claims against IMI and
others for compensatory and punitive damages generally
arising from a pipe that broke in 2008, which flooded the
basement and caused over-saturation of the septic system
drain filed, which led to an E-coli contamination of the
well, as well as freezing of the sprinkler system inside the
A/L and GCP requested that the arbitration be stayed because
they wanted to recover consequential damages but the
arbitration provision precluded such an award. However, the
United States District Court for the District of Montana
(Judge Molloy) ultimately ordered GCP to arbitrate its entire
dispute with IMI. In doing so, he found that "[i]f a
party could remove a matter from arbitration simply by
changing the types of damages it claimed, the arbitration
clause would be meaningless."
GCP first tendered a defense of A/L's claims to JRI on
October 10, 2010, to which JRI refused a defense on October
14, 2010. GCP represented to JRI that damages were likely in
the $1-2 million range. At this point in time A/L and GCP
were aligned as plaintiffs in this matter.
November 1, 2010, the parties attended a mediation in this
matter where A/L and GCP made a joint offer to settle all
claims for $3.5 million. Ex. 23-3. The matter did not settle
and arbitration continued to move forward separately.
January 17, 2011, the arbitrator ultimately found IMI was
entitled to $83, 528 from GCP, and GCP was entitled to $497,
549.11 from IMI, resulting in GCP receiving a positive
arbitration award of $414, 021.11. In making his
determination as to damages, the arbitrator found as follows:
The Project was extremely complex. This was fast track
construction with much of the design work (and decisions)
being made as the Project was being built. There were
numerous changes to the work and the Project was wrought with
environmental concerns and requirements. Mr. Abbey had his
own agenda as to what he wanted and expected without regard
to what it took to achieve the end result and (in some cases)
what it cost. Although Mr. Steinbeck was a competent
contractor, and I am not critical of his performance, he was
not an architect or an engineer. Since the scope of this
Project rivaled a fast track, complex, commercial Project, it
warranted having an architect to administer the Project,
update schedules, respond to questions regarding ongoing
coordination and design issues, and to deal with ongoing
changes. Although the termination [of Interstate] was
technically warranted, not all of the damages and occurrence
alleged or suffered by Glacier can be blamed on Interstate.
Some of the work performed in completion of Interstate's
work constitutes betterment to the systems originally
contracted for. Some of the costs Glacier now suffers are
also a result of not having an architect on board to
administer the Project and not having adequate project
controls in place. This makes assessment of damages very
difficult in that many of the categories of damages have
shared responsibility . . . Ex. 2-10.
The arbitrator's award to GCP is relevant as many of the
categories of damages claimed by GCP that were rejected by
the arbitrator are being claimed again in their entirety as
part of the confessed judgment. Some of these claims were
rejected because they represented "betterment" of
the project. However, some of the claims were rejected
because the arbitrator found they were caused by the
negligence of GCP. Matteson testified A/L had no reason to
believe GCP was negligent in the construction of the project
prior to this finding by the arbitrator.
The damage claims litigated in the arbitration belonged to
A/L. GCP had not suffered any damages due to any alleged
construction defects because A/L had paid GCP for all its
work. Any costs incurred to fix the alleged construction
defects would have been incurred by the owner, A/L, which had
paid GCP in full.
Paul Pederson, A/L's expert, testified that he generally
incorporated the entire $1.6 million claim for actual damages
alleged in the arbitration into the damages alleged by A/L in
this case. Other than the addition of interest by Mr.
Pederson and the alleged increase in electricity costs, the
actual damages claimed by A/L in this case are substantially
similar to the damages alleged in the arbitration. The
categories of actual damages are identical, although the
amounts claimed might vary slightly due to the use of
estimates in the arbitration and hard numbers in this matter.
The primary difference between the damages alleged by A/L in
this case compared to the arbitration are consequential and
punitive damages. Consequential damages constitute the
overwhelming majority of the damages alleged by A/L in this
case. However, they were prohibited from being recovered by
GCP in the arbitration as the contract between Glacier and
IMI prohibited their recovery. Recovery of consequential
damages was also prohibited by the General Contract
between A/L and GCP. Ex. 1-10.
The Arbitration Award was issued on January 17, 2011. Ex.
2-13. Just a few days later, Abbey shut down GCP and
transferred all its assets to A/L and one of Abbey's
We are in the process of discontinuing contracting operations
in Montana and shutting down Glacier.
As a result, client will be transferring title of all Glacier
assets to Abbey Land and/or Abbey Transportation. All
vessels, heavy equipment will be transferred to the
Transportation company. Any fixed assets to Abbey Land.
The scheduled "shut-down" date for GCP was February
15, 2011. GCP did not receive any compensation in exchange
for its assets.
March 18, 2011, after Abbey shut-down GCP, A/L made a demand
against GCP to be paid the entire amount of the $414, 021.11
arbitration award, as the amount represented damages actually
incurred by A/L. Ex. 22. A/L also represented the total
amount of damages had yet to be determined, and that the loss
of use damages would be substantial when claimed against IMI
A/L claimed GCP was liable to A/L for the arbitration award
and demanded that GCP tender to A/L all proceeds recovered
from any insurance company. Ex. 22. The demand letter was
sent by Robert Jenkins, an employee of The Abbey Company, but
was drafted by legal counsel for A/L and GCP.
March 23, 2011, GCP tendered A/L's claim for payment of
the $414, 021.11 arbitration award to Travelers.
April 8, 2011, GCP voluntarily dismissed all of its claims
against all of the defendants.
September 23, 2011, A/L filed its Second Amended
Complaint naming GCP as defendant. (Doc. 50).
the Second Amended Complaint A/L alleged the
defendants collectively had been negligent. The Second
Amended Complaint did not include any specific
allegations against GCP. For example, there were no
allegations that would support claims against GCP for
negligent construction administration, negligent hiring of
subcontractors, or negligent supervision of such
subcontractors. While Matteson testified A/L was not aware of
GCP's negligence until after the arbitrator's
findings, these were the types of claims contemplated by the
arbitrator. Nonetheless, they were not brought against GCP by
A/L. Instead, A/L's claims of negligence against GCP were
simply the pass through claims against the subcontractors.
its Answer, GCP admitted all of the general factual
allegations made by A/L in the Second Amended
Complaint. In regard to the claim of negligence, GCP
simply stated, "All of Glacier's general contractor
work at issue in this case was brokered to subcontractors . .
. Admit the other Defendants herein were negligent." GCP
also admitted all of A/L's allegations of damages. The
only affirmative defense GCP raised was that all of A/L's
damages were caused by the conduct of others. GCP did not
raise other common affirmative defenses-such as A/L's
duty to mitigate its damages, or enforceability of the
arbitration provision, which would have limited the scope of
GCP's liability to GCP.
Reoriented as a defendant in this matter, GCP again tendered
A/L's claims to JRI. Within 45 minutes JRI refused to
provide defense or indemnity, asserting that the claims-made
policy it issued to GCP did not provide coverage for the same
reasons it had denied a defense in 2010.
The purpose of flipping GCP to a defendant was to access
additional layers of insurance, which, all things being even,
is a prudent maneuver.
early 2011, prior to A/L filing the Second Amended
Complaint against GCP, counsel for A/L and GCP noted
that, if A/L were to file a formal claim against GCP, the
arbitration provision in the General Contract would
be important because the arbitration provision would have
limited A/L's claim for damages against GCP.
Accordingly, Abbey, on behalf of both A/L and GCP,
subsequently entered into a First Amendment to General
Contract, which among other things amended the
General Contract to delete the arbitration provision
contained in §3.4. Ex. 1-13. By deleting that provision,
Abbey also removed the prohibition against any award of
consequential or punitive damages against GCP and allowed him
to have A/L sue GCP.
The First Amendment states it was being
"entered into as of June 9, 2009." However, a
string of emails between Abbey and various attorneys in
2010-2012 demonstrate that June 9, 2009, was actually a
retroactive date in an attempt to get out from underneath the
limitations of the arbitration clause which deprived A/L of
seeking consequential damages. Exs. 16, 27.
According to Matteson, A/L's Rule 30(b)(6) designee, the
First Amendment to General Contract was allegedly
entered in April of 2011, by Robert Jenkins, in-house counsel
for the Abbey Company. However, the modification to the
General Contract did not appear in this litigation
until 2013 when Mr. Best attached it to a declaration (Dkt.
299) that he filed after the confession of judgment had been
Moreover, the record does not reveal when Abbey actually
executed the purported amendment. The only knowledge
A/L's Rule 30(b)(6) designee had regarding the amendment
came from A/L's current attorney. James Cummings,
GCP's attorney for a brief period in 2012, was not aware
of any modification to the General Contract. Ex.3-5.
He had planned to file a motion to compel arbitration but was
then terminated as counsel for GCP.
Trent Baker, who replaced Cummings at the request of Cushman,
was also apparently unaware of any modification. In September
of 2012, when the insurance adjuster asked Baker why the case
was not in arbitration, he responded that the arbitration
clause would only apply to claims for breach of contract-he
did not state that the arbitration clause no longer existed.
Even if the General Contract was actually modified
in April of 2011, A/L had already made demands against GCP at
that time. It was not in GCP's interest to amend the
General Contract to remove significant contractual
September 27, 2011, after A/L had filed the Second
Amended Complaint, Best filed a Notice of
Appearance (Doc. 52) on behalf of GCP, and also a
Motion to Admit Attorney Jon E. Cushman Pro Hac Vice
(Doc. 53). On October 2, 2011, the Court issued its
Order (Doc. 55) granting the Motion to Admit
Attorney Jon E. Cushman Pro Hac Vice on behalf of GCP.
On October 25, 2011, Cushman was also admitted pro hac
vice in the Lake County matter under the supervision of
John Mercer, and also on behalf of GCP. At the same time,
Best was representing A/L in the Lake County matter. (Ex.
GCP then answered the Second Amended Complaint by
admitting nearly every allegation and cross-claiming against
the other defendants. Even though GCP had switched from a
plaintiff to a defendant, its legal position had not changed.
Cushman controlled GCP's defense. For example, at one
point and as discussed above, Cumming was appointed as
counsel by one of GCP's insurers and began taking steps
to defend GCP from the claims asserted by A/L. These efforts
included retaining a construction expert and considering a
motion to compel arbitration. The construction expert, Mike
Herbst, examined A/L's claim for damages and believed
that "a lot of the allegations were items that were
doomed from the start." Ex. 3-4. Herbst opined the root
of A/L's alleged damages was that the drain field was not
designed to handle the 25 gallon per minute shower heads that
Abbey had installed in all the bathrooms in the house. GCP
likely would not have been liable for an improperly designed
May 7, 2012, Cushman instructed Cumming not disclose to
anyone that he had retained Herbst:
The expert you brought with you to the island was hired by
you for Glacier, correct? He has not made a written report,
correct? Most importantly, he has no contact with anyone but
you and in particular, has not had contact with the carrier
or anyone on behalf of carrier, correct?
I want to maintain strictest silence on that expert until I
decide we want to identify him. Until then I do not want the
carrier or anyone else to get any information about him, or
about the project from him. Ex. 29.
May 12, 2012, Cushman then directed the insurer to terminate
Mr. Cummings as counsel for GCP. Ex.3-3. An entry in the
insurer's claims journal states "Received an email
from Jon Cushman regarding wanting to replace James Cummings
in this case... Because of the tenor of Mr. Cushman's
letter, I am not sure who he represents." A subsequent
journal entry states "I have been advised that I need to
terminate James Cummings ...." This was after Cummings
had signaled his intention on March 29, 2012, to enforce the
arbitration provision. Ex. 3-5.
Following Cumming's termination, there is no evidence any
effort was made by anyone to mount a defense on behalf of
GCP. For example, GCP did not issue any discovery to A/L ...